Finance

Non-bank financial institutions’ reliance on banks for contingent credit under stress and its consequences

Published

10 months ago

April 27, 2025

In recent years, banks’ credit line exposure to ‘shadow banks’, or non-bank financial institutions (NBFIs), has grown significantly faster than exposure to non-financial corporations. Between 2013 and 2023, bank credit lines to NBFIs tripled from $500 billion to $1.5 trillion, and in 2023 over 20% of all bank credit lines were committed to NBFIs (Acharya et al. 2024). How do the growing linkages between banks and NBFIs impact the performance and systemic stability of banks? We answer this question by studying an important leading example of a non-bank financial institution – real estate investment trusts (REITs; Acharya et al. 2025).

REITs are significant investors in commercial real estate (CRE), with over $4 trillion in investments, corresponding to 20% of the CRE market that is currently valued at $21 trillion.
Rising interest rates and an economic slowdown can therefore exert considerable pressure on the CRE sector.
Considering the vast scale of the CRE market, disruptions in the CRE sector can influence the availability of bank credit to households and businesses. Consequently, regulators and policymakers have increasingly focused on the risks associated with CRE loans in recent times. REITs, being large CRE investors, inherit these fundamental economic and financial risks.

Importantly, nearly half of all bank-originated credit lines to public NBFIs are allocated to REITs. As shown in Figure 1, REITs exhibit significantly higher utilisation rates on bank credit lines compared to other NBFIs and non-financial corporates. Moreover, their credit line usage is markedly more sensitive to aggregate market performance, as indicated by the slope coefficients in the figure. Notably, REIT utilisation rates spike during periods of market stress (such as the COVID-19 period), making credit lines to REITs a potentially significant source of systemic risk for banks.

However, despite these factors, the significant exposure of large banks to the CRE sector via their credit lines to REITs is often underappreciated. It is commonly assumed that disruptions in the CRE sector mainly affect smaller banks. Figure 2 illustrates the on-balance-sheet exposure in the form of CRE loans as a proportion of total equity over the past decade for three types of banks: community banks (assets under $10 billion), regional banks (assets between $10 billion and $100 billion), and large banks (assets exceeding $100 billion). The exposure of regional and community banks, when scaled by equity, is approximately four and five times greater, respectively, than that of large banks. As per this exposure measure, there has been a notable increase over the past decade in CRE loan exposure among regional and, especially, community banks, but not among large banks. This might suggest that the CRE stress does not pose systemic risk to the largest banks in the economy.

Figure 1 Average credit line utilisation by borrower group

Notes: This figure plots the average credit line utilisation rate by three groups of borrowers – REITs, NBFIs (excluding REITs), and non-financial companies – versus the S&P 500 return. Each dot indicates the utilisation rate in one of the quarters between 2005Q1 and 2023Q4. The dots for 2008Q4 and 2020Q1 are labelled to highlight the main crisis quarters. The solid blue line indicates the slope of a regression of utilisation rates onto the S&P 500 return for REITs, the dashed red line and the green dotted line indicate the respective slopes of the same regression for NBFIs excluding REITs and non-financial companies. Data are obtained from Capital IQ and CRSP.

However, these figures ignore loans and credit lines provided by banks to REITs. The primary conclusion that emerges from our empirical analysis is that to get a complete picture of bank exposure to CRE risks, it is important to focus not just on the direct CRE exposure of banks but also on the provision of credit, especially by large banks, to REITs. Once the indirect exposure of banks via term loans and credit lines to REITs is accounted for, CRE exposures are concentrated not only in the portfolios of smaller banks but also among the largest US banks. Figure 3 illustrates this fact. In this figure, we categorise bank exposure into direct CRE exposure, indirect exposure via term loans to REITs, and indirect exposure through credit lines to REITs. For large banks, indirect exposure constitutes about a third of their total exposure, whereas for regional banks, the indirect exposure through REITs is considerably smaller, and for community banks, it is practically negligible.

Figure 2 Total on-balance-sheet exposure to the commercial real estate market

Notes: This figure shows the total reported on-balance sheet exposure to the commercial real estate market scaled by the total book value of equity of the bank. Data are from the FR Y-C at the quarterly frequency from 2013Q1 to 2023Q4. We split banks into three types: community banks (assets

Figure 3 Total exposure of banks to commercial real estate

Notes: This figure shows the total exposure of banks to commercial real estate (CRE) by stacking their direct exposure through on-balance sheet CRE loans and indirect exposure through banks’ term loans and credit lines to Real Estate Investment Trusts (REITs). Banks are classified as follows: community banks (assets
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What, then, are the underlying mechanisms through which credit-line exposure of banks to REITs might pose a system-wide risk? In summary, there is a higher utilisation rate of credit lines by REITs relative to other NBFIs and non-financial corporates, especially when the performance of the underlying real estate assets declines and particularly during periods of aggregate economic stress. This behaviour is associated with a notable decrease in stock returns for banks more heavily exposed to undrawn credit lines extended to REITs, consistent with capital encumbrance imposed by credit line drawdowns impeding banks’ future intermediation activities.

We first tease out why REITs have higher utilisation rates on credit lines, especially during stress. By regulation, REITs are required to pay out at least 90% of their income in the form of dividends, restricting the amount of cash REITs can accumulate.
This leads to a disproportionately large dependence of REITs on bank credit lines for liquidity during stress periods. For example, Blackstone REIT (BREIT) and SREIT (managed by Starwood Capital) relied on their lines of credit during 2022 and 2024 respectively, nearly exhausting their credit line capacity to satisfy investor withdrawal requests.
We show that the findings in these case studies generalise to a broader setting in which we find significant positive correlations between redemptions and credit line drawdowns for all REITs in our sample. We also find that REITs increase investments and dividend payouts and reduce cash in the four quarters after a drawdown. This seems to indicate that they use both their cash and the liquidity from credit lines to acquire properties and pay out dividends. During crises (Global Crisis and COVID-19) however, we find that REITs start building cash buffers and they discontinue investing, i.e. acquiring properties. In fact, 72 cents of each dollar drawn is used to increase cash holdings. In other words, REITs use bank credit lines like ‘working capital’ for business activities in normal times, but to hoard cash during stress times.

We next investigate the impact of higher credit line utilisation by REITs on banks. Unlike term loan exposures that banks report on their balance sheet and fund with capital, and whose potential risks they manage through loan loss provisions, credit lines are off-balance-sheet and funded with equity capital to a much lesser extent until drawn down. Moreover, the risk of simultaneous drawdowns by borrowers during widespread market stress may suddenly constrain bank capital and/or liquidity, thereby reducing the banks’ ability to intermediate effectively. Consistent with these channels, we find that banks with higher undrawn credit line commitments to REITs experience lower stock returns during crises (controlling for banks’ total credit line commitments).

Finally, we document that credit lines to REITs substantially increase banks’ capital requirements during aggregate stress periods. We estimate an expected (market-equity-based) capital shortfall under aggregate market stress (e.g. -40% correction to MSCI Global Index) vis-à-vis a benchmark capital requirement (e.g. 8% of market equity relative to market equity plus non-equity liabilities), by incorporating REIT and non-REIT credit lines in stress test scenarios. We compare three models: one treating all borrowers uniformly, one distinguishing REITs by their unique drawdown behaviour, and one considering direct on-balance-sheet CRE exposure. As of Q4 2023, we estimate that the incremental capital requirement for publicly traded US banks rises by approximately 20% — from $180 billion to $217 billion — primarily due to REIT drawdowns, while CRE exposures add only $2 billion. Notably, over 90% of this additional capital burden falls on large banks. These results highlight the systemic risks posed to banks, and in turn to the real economy, by REIT credit lines, underscoring the need for careful regulatory scrutiny.

While we have focused on publicly traded REITs, this raises broader questions about the growing linkages between banks and NBFIs. Acharya et al. (2024) document that NBFI drawdowns have risen from 25% in 2013 to over 50% post‐COVID, with private NBFIs accounting for nearly 60% of drawdowns by private firms (compared to 30% for public ones). Additionally, credit lines to NBFIs such as business development companies (BDCs) and collateralised loan obligations (CLOs) have increased from 28% to 42% of total bank credit to NBFIs between 2013 and 2023. Given that private NBFIs generally exhibit higher credit line utilisation rates than REITs, stress in their funding conditions could similarly affect banks via the credit line channel. In essence, as NBFIs continue to expand their role in credit intermediation, their continuing reliance on banks for contingent liquidity highlights a critical channel through which risks may be transmitted back to the banking system.

References

Acharya, V V, N Cetorelli and B Tuckman (2024), “Where Do Banks End and NBFIs Begin?”, NBER Working Paper.

Acharya, V V, M Gopal, M Jager and S Steffen (2025), “Shadow Always Touches the Feet: Implications of Bank Credit Lines to Non-Bank Financial Intermediaries”, NBER Working Paper No. w33590.

Gupta, A, V Mittal and S Van Nieuwerburgh (2022), “Work from home and the office real estate apocalypse”, Working Paper, NYU Stern School of Business.

Hardin III, W and M Hill (2011), “Credit line availability and utilization in REITs”, Journal of Real Estate Research 33: 507–530.

Jiang, E X, G Matvos, T Piskorski and A Seru (2023), “Monetary Tightening, Commercial Real Estate Distress, and US Bank Fragility”, NBER Working Paper.

Mei, J and A Saunders (1995), “Bank risk and real estate: an asset pricing perspective”, The Journal of Real Estate Finance and Economics 10: 199–224.

Finance

Why has the UAE closed its stock exchanges?

Published

5 hours ago

March 2, 2026

Press Room

Why has the UAE closed its stock exchanges?

The United Arab Emirates has closed its main stock exchanges amid a widening conflict in the region following the United States and Israel’s attacks on Iran.

The UAE’s financial regulator on Sunday announced that its key exchanges in Dubai and Abu Dhabi would not immediately reopen after the weekend break amid the fallout of the US-Israeli attacks that killed Iran’s Supreme Leader Ayatollah Ali Khamenei.

Why has the UAE decided to shut its main stock exchanges?

The financial regulator did not elaborate on the rationale for its decision, only saying that it was taken in accordance with its “supervisory and regulatory role” in managing the country’s financial markets.

While closing the stock market outside of scheduled breaks is relatively unusual worldwide, especially in the era of electronic trading, it is not unprecedented.

Typically, when financial authorities halt stock trading during a crisis, it is because they are concerned about panic selling.

During periods of extreme volatility, such as wars and financial crises, investors often rush to sell their holdings to avoid suffering big losses.

As investors sell their stocks, the market value falls further.

This dynamic can spur a vicious cycle that, left unchecked, can lead to a full-blown market crash.

Since the US-Israeli attacks on Iran, stock markets around the world have seen significant – though not catastrophic – losses, while oil prices have risen sharply.

Saudi Arabia’s benchmark Tadawul All Share Index fell more than 4 percent on Sunday, while Egypt’s EGX 30 dropped about 2.5 percent.

In Asia, major stock markets closed lower on Monday, with Japan’s benchmark Nikkei 225 and Hong Kong’s Hang Seng Index down about 1.4 percent and 2.2 percent, respectively.

The practice of shutting the market to prevent panic selling is controversial among economists and investors.

Closing the market prevents investors from accessing cash they might need in a hurry.

Critics also argue that such closures only exacerbate the sense of panic they seek to prevent and distort important signals about the market.

“Investors don’t like uncertainty, and at times of market stress, liquidity is most important. It appears the UAE just took that away,” Burdin Hickok, a professor at New York University’s School of Professional Studies, told Al Jazeera.

“This move has the potential of diminishing the status of Dubai as a true major market and weaken investor confidence in the Dubai markets. There has to be some concern about capital flight and negative ripple effects.”

Has this happened before?

The UAE has closed its stock exchanges before, though not due to regional conflict.

In 2022, the UAE halted trading as part of a period of mourning declared to mark the death of President Khalifa bin Zayed Al Nahyan.

The emirate announced a similar pause following the death of Dubai’s ruler, Sheikh Maktoum bin Rashid Al Maktoum, in 2006.

“Historically, to the best of my knowledge, no Middle Eastern state, including Israel, has closed its stock exchange during a time of regional conflict,” Hickok said.

“In prior conflicts, Israel has modified hours of their exchange, but we are talking hours, not days.”

Other countries have shuttered their stock markets during periods of major turmoil in recent years.

After Russia launched its full-scale invasion of Ukraine in 2022, authorities shut the Moscow Exchange for nearly a month.

In 2011, Egypt shut its stock exchange for nearly two months as the country was grappling with the upheaval of the Arab Spring.

After the September 11, 2001, attacks on the United States, the New York Stock Exchange and the Nasdaq halted trading for six days, the longest suspension since the Great Depression.

How important is the UAE’s stock market?

The UAE is a relatively small player in the world of capital markets, though it has made significant inroads in recent years.

The Abu Dhabi Securities Exchange and Dubai Financial Market have a combined market capitalisation of about $1.1 trillion.

By comparison, the New York Stock Exchange, the world’s biggest bourse, has a market capitalisation of about $44 trillion.

Saudi Arabia’s Saudi Exchange, the biggest exchange in the Middle East, is valued at more than $3 trillion.

Still, the UAE’s stature among financial markets has been on the rise.

Before the latest crisis, UAE-listed stocks had been on a winning streak.

The Dubai Financial Market General Index, which includes companies such as Emirates NBD and Emaar Properties, rose more than 29 percent in the 12 months to February 27.

Haytham Aoun, an assistant professor of finance at the American University in Dubai, said while the UAE could see some outflow of foreign capital, the country’s economy remains on a strong footing.

“A temporary stock market closure will have a limited impact on long-term economic variables, provided the fundamentals remain strong,” Aoun told Al Jazeera.

“In the UAE case, it’s a precautionary intervention, and not a sign of structural weakness.”

Finance

Canton High School students find success in personal finance

Published

18 hours ago

March 2, 2026

Press Room

Canton High School students find success in personal finance

CANTON, Miss. (WLBT) – A group of juniors at Canton High School has won back-to-back state championships in Mississippi’s Personal Finance Challenge.

The team’s work can be seen through the school’s reality fair, where students are assigned careers and salaries and must make the same financial decisions adults face each month.

Teena Ruth, a personal finance teacher, said the exercise resonates beyond the classroom.

“It’s an eye-opening experience,” Ruth said. “They kind of see what it’s like for even their parents when they have to make these decisions every day — when they are writing out those checks.”

For student Jalynn Dunigan, the program carries personal significance.

“To be known for something else outside of cheer and not just what I do on a court, on a field. I can do something and put my brains to it and people can know that I’m not just pretty,” Dunigan said. “I’m smart as well.”

Student Henser Vicente said the team’s success sends a broader message.

“We’re making a statement that we’re not what you think we are,” Vicente said. “Like, we’re greater than what you think. We can do better than what you think we can do.”

A proposed financial literacy bill in Mississippi would require students to pass a semester of personal finance as a graduation requirement.

Alexandria Luckett said the team’s national success is already motivating others at the school.

“I’m so happy that people are getting more involved in things like this and stepping out of their comfort zone and just putting themselves out there,” Luckett said. “Because I know there’s a lot of shy students [who] don’t necessarily join clubs or anything. So, when they see a group like this going to nationals two times in a row, I feel like that motivates a lot of students.”

Nelly Rosales said competing at the national level has given the team a platform beyond the competition floor.

“We’ve gone to Cleveland, Ohio, we’ve gone to Atlanta, and then hopefully this year we get to go out of state again,” Rosales said. “Being able to be a role model to a lot of children — like especially Hispanic girls who don’t see a lot of role [models] especially in the community — being able to be a role model is a really big thing.”

The students are currently gearing up for this year’s State Personal Finance Challenge set to take place next month.

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Finance

A 27-year-old drew down half of her stock portfolio to buy real estate. It’s part of her plan to hit financial independence.

Published

1 day ago

March 1, 2026

Press Room

A 27-year-old drew down half of her stock portfolio to buy real estate. It’s part of her plan to hit financial independence.

A few years into her accounting career, Carolyn Yu began thinking seriously about financial independence.

“I’d feel very stressed and tired,” Yu, who was working at a Big Four firm at the time, told Business Insider. “I thought, maybe someday I could have more freedom and not spend 24/7 working at a very demanding job.”

She picked up “Rich Dad, Poor Dad” and started listening to the popular real estate podcast, BiggerPockets. One takeaway stood out: focus on buying assets that can grow in value.

Yu, who’d been consistently investing in the stock market since college, felt compelled to make a move. In late 2024, she drained about half her stock portfolio in order to pay cash for a two-bedroom, two-bathroom condo in Fort Worth, Texas.

The Bay Area-based Gen Zer had been eyeing Texas in part for its tax advantages, including the absence of state income tax. She considered other Texas markets, but Fort Worth stood out for its affordability and growth potential.

“The population growth, the crime rate, the property value growth — they all looked good to me,” she said.

She flew to Fort Worth, toured the condo, signed a contract the next day, and closed within a month. Yu intentionally kept her first purchase under $100,000, unsure whether she had the capital or experience to take on something larger.

“Pretty much 50% of my stock portfolio was gone,” she said. But the drawdown didn’t faze her. “I knew that $80,000 transitioned into another investment.”

Scaling to 5 properties in 2 years by recycling capital

Yu grew her portfolio by reinvesting equity from one property into the next.

Her strategy centers on buying below market value, improving the property, allowing it to appreciate, and then tapping into the built-up equity to help finance another purchase.

As her portfolio expanded, her financing evolved. She moved from paying all cash for her first condo to using conventional loans and later DSCR (debt service coverage ratio) loans, which are designed for investors and rely heavily on a property’s cash flow.

Her second purchase was a two-bedroom, one-bath single-family home. She bought it in June 2025 for about $105,000, putting down 25%. After investing about $50,000 in renovations, she said the home appraised at $195,000 and rented for $1,500 a month.

“This property allowed me to execute the BRRRR strategy successfully,” she said, referring to buy, rehab, rent, refinance, repeat. She said she was able to pull out about 70% of the appraised value to help fund her next purchases.

Within about two years of buying her first condo, Yu had a five-property portfolio. Her first three are cash-flowing, while her fourth is currently listed for rent, and her fifth is being prepared for tenants. Business Insider reviewed mortgage documents to confirm ownership and lease agreements to verify rental rates.

Yu resides in the Bay Area, but invests in real estate in Fort Worth.

Courtesy of Carolyn Yu

One of the challenges she’s faced since buying property has been vacancy.

She purchased her first condo in late 2024 — “probably the worst time to rent because of winter vacancy,” she said — and it sat empty for six months. She eventually lowered the asking rent by about $100 a month before securing a tenant.

The vacancy was stressful, but manageable because she had paid cash and didn’t carry a mortgage. Still, she owed about $600 a month in HOA dues.

Her advice to other investors: keep at least six months of reserves, know your numbers inside and out, and expect vacancies and repairs.

Why she prefers real estate to stocks

Yu still invests in stocks, but said she prefers real estate because it feels more controllable and scalable. In addition to generating a few thousand dollars a month in rental income, she’s also building equity in her properties.

“Real estate gave me more control, more tangible assets, more tax efficiency,” she said, pointing to depreciation, mortgage interest deductions, and the ability to refinance without selling. She also enjoys negotiating deals.

She funnels most of her rental income back into her stock portfolio. Her end goal is financial independence and work flexibility.

Yu wants to own at least eight properties by 2027 and have her portfolio appraised at roughly $2 million. By then, she hopes rental income will cover her expenses and provide enough cushion to leave her W-2 job, so she can focus solely on her real estate business.

She’s also changed how she thinks about spending. Early in her career, she said she coped with work stress by traveling frequently. Now, she prioritizes investing over lifestyle upgrades.

“I would rather put my money into investments right now in exchange for vacations in the future,” she said. “I think it’s totally worth it because I think in two years, I could be financially free.”